Challenging a trustee's fees on the basis of privacy breaches?

Can a debtor object to a trustee's R&D statement on the basis of the fees of the trustee and its counsel?

Re Strachan, 2023 ONSC 5298
Can a debtor object to a trustee's R&D statement on the basis of the fees of the trustee and its counsel?

Overview: In this case, the Court upheld a trustee’s fees, which the debtor had challenged, alleging that the trustee’s conduct had violated her privacy rights and that the trustee should not be permitted to charge fees to the estate to deal with complaints the debtor made about the trustee’s conduct. The Court found that the fees were reasonably incurred and that there was no issue with the trustee and its counsel seeking reimbursement from the estate for their time in dealing with the debtor’s complaints to the OSB.

The Debtor made an assignment in bankruptcy in April 2007. She was entitled to an automatic discharge from bankruptcy in January 2008, unless an objection was made under the Bankruptcy and Insolvency Act. On December 5, 2007, the Trustee in Bankruptcy issued a notice of objection to the discharge from bankruptcy under section 168.2 of the BIA due to the Debtor’s failure to comply with surplus income requirements and perform the duties imposed on her by the BIA.

The Debtor’s sole asset of value was her interest in real property that she co-owned with her former spouse. The property was sold and net proceeds of $297,243.39 were paid into the bankruptcy estate. Unsecured creditors whose claims totaled $19,150 were re-paid in full. Pursuant to an Order of the Court, the Trustee released $190,378.31 to the Debtor and held back $84,831.11. The Trustee had not previously received payment of any of its fees and disbursements incurred in the administration of the bankruptcy estate.

The Trustee sought approval of its Amended Statement of Receipts and Disbursements. On February 6, 2023, the Office of the Superintendent of Bankruptcy issued a letter to the Trustee that confirmed that, as required under subsection 152(4) of the BIA, the OSB had reviewed the R&D Statement and requested that the Trustee proceed to seek court approval of same.

The Debtor objected to the approval of the R&D Statement on the basis that the fees of the Trustee and the fees and disbursements of the Trustee’s lawyers were excessive and should be reduced. Her complaints focused primarily on the fact that the Trustee and its counsel were in contact with her children regarding the sale of the property, and did not contact her to discuss the property. She argued that this was improper and violated her privacy rights, and the Trustee and its counsel should not be paid for time spent on these discussions. In addition, the Debtor also objected to the Trustee and its counsel charging fees to the estate in dealing with the complaints she made to the OSB about the Trustee’s conduct. The Debtor had also made a complaint about the OSB employee who had investigated her prior complaints, which also required time to be spent by the Trustee and its counsel.

Subsection 152(5) of the BIA requires that the R&D Statement be approved by the Court before the Trustee can take steps to seek its discharge. The Court held that the Ontario Court of Appeal’s previous pronouncements that fairness and reasonableness of the fees of the receiver and its counsel are the lynchpins of the analysis to be undertaken by a court are equally applicable to approval of the fees and disbursements of a trustee in bankruptcy. The Court adopted the appellate Court’s list of factors which are to serve as a useful guideline in assessing compensation:

  1. the nature, extent and value of the assets;

  2. the complications and difficulties encountered;

  3. the degree of assistance provided by the debtor;

  4. the time spent;

  5. the receiver’s knowledge, experience and skill;

  6. the diligence and thoroughness displayed;

  7. the responsibilities assumed;

  8. the results of the receiver’s efforts; and

  9. the cost of comparable services when performed in a prudent and economical manner.

The amount of time spent by the Trustee and its counsel was proportionate and necessary given the complexities in dealing with the property and the complaints filed against the Trustee by the Debtor. It had been appropriate for the Trustee and its counsel to be in contact with the Debtor’s children regarding the property, given that her former spouse was suffering from terminal cancer in 2020 when the issue of the sale of the property was revisited, and the children were eventually appointed as executors in his estate (which held a ½ interest in the property).

There was also no issue with the Trustee and its counsel seeking reimbursement from the estate for their time in dealing with the Debtor’s complaints to the OSB, especially given that both complaints were dismissed by the OSB. The OSB provided a positive letter of comment to the Trustee and took no steps to object to the Trustee’s approval of the R&D Statement. Accordingly, the Court inferred that the OSB did not take issue with how the Trustee had administered the estate.

The Court was satisfied that the Trustee’s fees and its counsel’s fees were fair and reasonable, and approved the R&D Statement.

Judge: Associate Justice Rappos

Counsel: Sanj Mitra of Aird & Berlis for the Trustee

 Howard Manis of Manis Law for the Debtor